What GST Means For Online Fashion Retailers

by CXOtoday News Desk    Jun 27, 2017

fashion retailer

It is finally here, GST. One of the largest tax restructuring exercises the country has experienced is bound to change a few things. GST will have an effect on many sectors, including textiles and fashion. From raw material producers to ready-made online distributors, every segment will feel the change, as consumer buying habits will be affected by the new tax regulations. The GST also includes specific sections that deal with compliance for e-retailers and online aggregators, adding more clarity to what has been a grey area in many aspects.

Online shopping sites are offering discounts because of this uncertainty regarding the impact of GST on fashion retail. The immediate impact points at higher retail prices as producers and resellers grapple with the new norms. Some of the highlights of GST with regards to ready-made clothing include a 12% tax on garments costing more than Rs 1000, while garments costing less than Rs 1000 will be taxed at 5%. According to many reports, sellers are pushing online partners to offer discounts so that old inventories can be cleared. New policies on tax credit are also thought to be behind this discount push with GST looming on the horizon. 

The GST has, however, been welcomed immediately by textile and apparel manufacturers with rates cut down from 18% to 5%. This comprises of firms dealing with the processing of fabrics and embroidery. Merchant factories produce around two-thirds of the volume, and this GST break is a boost for the grassroots.

GST is promoting a transparent ecosystem for business, and this, in turn, is expected to increase the level of competition. E.g. A consumer looking for ladies tops online will have a better shopping experience with more sellers offering competitive prices and a larger range of choices compared to a scenario where established players share a consolidated market for the product. A level playing area and the neutrality of online real estate can lead to some very interesting times for the burgeoning Indian fashion and apparel market. That can spell only good news for the end buyer on the long run.

A successful online fashion retailer is the one with the best products and the best-targeted promotions. Irrespective of GST, a shopper buying apparel, whether women’s dresses or children’s clothes, is still more likely to look for the best quality within a price point and the latest styles. The long-term focus will always be on correct sourcing, utilising real-time data, and gathering intelligence on consumer behaviour and larger trends.

GST is creating a landscape for uniform opportunity and will incentivise production. The benefits of GST are aplenty, and a lot of them will be felt after the new taxation has been put into place. Doing away with local taxes will encourage smaller producers to increase their scope of business across state borders. Strategic warehousing will be a thing of the past once a uniform tax hits the grassroots. These benefits are expected to trickle back into production and help the industry overall. The online platforms sell products that are the result of many co-operating segments in India’s large textile landscape, and a GST boost to producers and manufacturers will cascade to big online retailers.